Domestic Consumption the Key to Growth, says Indonesian FM

The
slowdown in the Chinese economy was always going to be a problem for
Indonesia, and a domino effect is feared. However, Indonesian Finance
Minister Sri Mulyani Indrawati thinks otherwise and has stated that
government spending and robust domestic consumption is going to be a
potent antidote to an economic slowdown that might be looming.

With
aggregate trade volume rising to $66 billion last year, which is a
rise of 25%, China remains the biggest trading partner for Indonesia.
However, the slowdown in the Chinese economy has seen measures that
could lead to shrinking domestic demand in China, and hence, the
whole thing could affect the Indonesian economy quite adversely.

According
to the Finance Minister, the key role of the government would be to
ensure that the purchasing power of the population is boosted and in
the process, higher consumption is going to help avoid an economic
slowdown. Indrawati stated, “The success in maintaining people’s
purchasing power and consumption, which accounts for more than 55
percent of Indonesia’s gross domestic product, will determine if
the country can withstand weak external situation.” She further
stated that slowdown in China and a drop in exports to Asia’s
largest economy wouldn’t hurt Indonesia if domestic consumption can
be propped up. It is a bold claim considering the current political
climate in the country.

President
Joko Wikodo of Indonesia is going to bid for a second term in April
later this year, and amidst all that, the Indonesian economy is
struggling to keep up growth. Commodity prices have weakened, and on
the other hand, the trade deficit has ballooned to record levels due
to the slowdown in China. Even though local currency rupiah has
bounced back from 20 years lows, there remains a genuine worry that
current account deficits might give potential investors pause.
Regarding the current account deficit, Indrawati stated that the
Indonesian government is going to use all tools under its disposal to
keep it under control. She did not rule out using both fiscal and
monetary methods to tackle the problem.

Last
but not least, the Finance Minister also added her ministry is also
looking at ways to ensure that there is get cheap financing so that
her plans can be set in motion. In this regard, she also added, that
the efforts of Bank Indonesia in monitoring the marked will make sure
that there is no liquidity crisis in the event of budget financing.

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